Indian gold loan lenders' stocks dip as cenbank scrutiny sparks growth fears (updated)

IIFL Finance

01/10/2024 05:59

(Adds details and context on RBI gold lender action in
paragraph 4, 6-10)
    By Nandan Mandayam and Siddhi Nayak
       Oct 1 (Reuters) - Shares of Indian non-bank gold lenders
Manappuram Finance  MNFL.NS  and Muthoot Finance  MUTT.NS 
dropped 2.9% and 3.6% early on Tuesday due to growth concerns, a
day after the central bank found "several irregular practices"
in the industry.
    These irregularities, the Reserve Bank of India said,
included the use of third parties to source and appraise gold
loans, not valuing gold in the customer's presence and
inadequate due diligence.
    Those comments are "a sentimental negative for the gold
lenders", brokerage Motilal Oswal said in a note.
    The central bank gave lenders three months to fix the lapses
and report back in order to avoid supervisory action.
    "Tightening of these processes may affect growth, (and)
asset quality recognition at gold financiers," Jefferies said in
a note late on Monday.
    Indian banks have consistently clocked double-digit loan
growth over the past few months as strong economic growth helped
drive retail loans.
    The rate of growth in gold loans, however, has outshone the
industry average, helped by bullion prices hitting record-highs.
    For instance, outstanding loans against gold jewellery grew
nearly 41% on-year in August, much higher than overall loan
growth of 13.6% and also doubling from the 20.1% gold loan
growth rate in August 2023, the RBI's latest data shows.
    The RBI, worried about the risk of bad loans, has publicly
warned all lenders against "all forms of exuberance".
    It has previously taken action against gold loan companies,
including barring IIFL Finance  IIFL.NS  in March, from offering
such loans due to "material supervisory concerns".
    While those restrictions were lifted last month after a
special audit, it wasn't soon enough to prevent IIFL Finance
from swinging to a net loss in its April-June quarter.

 (Reporting by Nandan Mandayam in Bengaluru and Siddhi Nayak in
Mumbai; Editing by Savio D'Souza)
 ((Nandan.Mandayam@thomsonreuters.com; Mobile: +91 9591011727;))